Abstract

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After a tumultuous and extended legislative process, President Obama signed the Patient Protection and Affordable Care Act (“PPACA”) on March 23, 2010. PPACA was “sold” to the public with an explicit promise that it would not interfere with existing coverage arrangements. President Obama repeatedly claimed “If you like your health plan, you can keep it,” and “if you already have health insurance, the only thing that will change for you under [my] plan is the amount of money you will spend on premiums. That will be less.”

It is now more than three years since PPACA was enacted -- what lessons should we take from the first three years of PPACA? How likely is it that the government’s ponderous bureaucracy can keep the promises of President Obama? And, if government falters, as we think likely, what should the nation do instead? We sketch out our responses to each of these questions in this essay.

To summarize, PPACA is extraordinarily unlikely to lower health care costs, but it has significant potential to destabilize existing coverage markets. Our prediction is that neither of the two Obama promises will or could be kept, even were PPACA implemented more or less as written (which with each passing day seems increasingly unlikely). In our view, the problems that have already materialized in the first three years post-PPACA are merely precursors to greater difficulties to come – difficulties that virtually insure that PPACA will turn out to be an expensive and misguided failure, assuming that it survives at all.

PPACA’s fundamental design defect was to superimpose additional layers of regulation and subsidies on a system that was already top-heavy with both. These preexisting regulations and subsidies have already misaligned the incentives within the health care system. The next generation of rules will only compound the errors. In our view the right approach to these problems is to promptly initiate a program of systematic deregulation that will introduce the choice and competition that PPACA gives at best lip service to. The right sequencing of reform is critical. It is far cheaper to remove regulations and subsidies than to add them. Each of these maneuvers should work, as no regulatory scheme could do, to reduce cost and increase both access to care, and quality of health care. Then, and only then, is it prudent to consider further steps, such as additional regulations (to constrain costs) and subsidies (to increase access).